For Peter Wexler (\u201993), you start a business because: \u201cYou have a great idea, you\u2019re solving a real problem, and there\u2019s an opportunity in the market.\u201d Common sense, right? But too often, people don\u2019t see beyond the good idea, don\u2019t understand that need and opportunity are part of a package. Not surprisingly, they\u2019re bound to fail.<\/p>\n
Wexler is a cofounder of SpiderCloud Wireless, a mobile broadband technology provider that was fifth on the Wall Street Journal<\/em>\u2019s 2012 \u201cThe Next Big Thing\u201d list, which ranked the top 50 American start-ups funded by venture capital. An engineer with a long and distinguished career\u2014as vice president of engineering at Juniper Networks, he helped build his team from 17 to over 600\u2014Wexler knew that based on his track record and that of his two partners, they would have no trouble raising money if their idea was sound. He was right: in five years SpiderCloud has raised $100 million. Investors were willing to make the leap not just because they believed in the product; they believed in the plan, too. Although there\u2019s no blueprint that can guarantee the success of a start-up, the plan executed by Wexler and his two partners appears to be a model of its kind.<\/p>\n The idea for SpiderCloud began to percolate in the fall of 2006, when the three got together and started contemplating where the wireless network was heading. \u201cWe picked up early on that emerging technology was going to enable new classes of mobile devices like smartphones and tablets that would have substantial demand for bandwidth inside buildings.\u201d They also recognized that traditional outdoor cell towers could not satisfy the indoor bandwidth needs. \u201cAt the same time, we were talking with the semiconductor vendors who were developing new processors that could provide the needed bandwidth inexpensively.\u201d<\/p>\n Getting wireless devices to work effectively inside office buildings has become more and more problematic as the number of mobile devices has skyrocketed. Today, 55 percent of cell phone users have a smartphone\u2014and most of them are trying to grab data from the Internet, whether downloading emails packed with attachments or watching online videos. \u201cThere\u2019s a limited amount of spectrum, and it tends to be very expensive,\u201d says Wexler of the pressure that burgeoning use places on the networks delivering all the data. \u201cAnd buildings, especially the newer green ones, have features that can significantly limit the penetration of radio signals.\u201d<\/p>\n SpiderCloud, based in San Jose, California, was created to resolve those issues with an innovative indoor system that reuses the outdoor spectrum; it\u2019s like having a mini personal cell tower in your building. \u201cImagine a little device you can hold in your hand that\u2019s a complete cellular base station,\u201d says Wexler. \u201cThe devices are distributed throughout a building, they\u2019re easy to install, they deploy quickly, and they\u2019re cost effective.\u201d<\/p>\n But in November 2006, when Wexler seeded the company and opened a small office, the technology was still in its infancy, so he and his partners took the time to thoroughly investigate the alternatives, to learn what was already possible and what would be possible in a few years. They also started talking to potential customers: the businesses that might have a need for installing SpiderCloud in their buildings and the mobile carriers that would have to agree to allow the company to use their spectrum.<\/p>\n \u201cPeople often think they have a great idea, but they don\u2019t validate the idea sufficiently: they don\u2019t understand the market, who\u2019s going to use the product, what it will cost,\u201d says Wexler. \u201cThere are lots of people who have great product ideas, but they don\u2019t get the market timing right, or they don\u2019t understand the customer, the technology risk, or the sales channel. And they don\u2019t make it.\u201d<\/p>\n When they felt they had learned enough about the technology and the market, they drafted a plan. The next step was to begin raising money. \u201cWhat happens in negotiations with a venture firm is you share your plan with them, give them an idea of how much money you want to raise, and they give you a term sheet,\u201d says Wexler. \u201cEssentially they say, \u2018OK, we\u2019ll give you this amount of money, but here are the terms.\u2019 Then there is a negotiation as to the final terms. One big question is valuation: What does the venture investor estimate the value of the company to be at the time of funding? Essentially, the higher the valuation, the greater percentage of the company the founders, seed investors, and the employees retain.\u201d<\/p>\n The first venture investor came on board, but only after SpiderCloud made some alterations in its initial plan. \u201cThings change, so you have to have the ability and willingness to adapt, whether it\u2019s to the market or the environment around you,\u201d says Wexler. \u201cYou don\u2019t put a business plan in place and execute it without looking at what\u2019s going on\u2014it needs to be a living document.\u201d<\/p>\n But they still needed a second venture investor and that was proving to be more challenging. \u201cWe talked to a lot of people, and they believed we could build it; they believed the market was there,\u201d says Wexler. \u201cBut they were concerned with the complexity of the sales channel model and felt we needed to have a senior member of the team with deep telecom carrier sales experience.\u201d<\/p>\n Wexler and his partners took some time to evaluate their next steps, and by the end of summer 2007, two things were clear: They needed to raise more money than they\u2019d initially calculated, and they needed to hire an experienced sales executive. The team submitted their new funding requirements to their initial investor, who agreed to support their numbers if a second investor was found. With a new sales executive on board\u2014he\u2019s now the CEO\u2014another venture firm signed on, and SpiderCloud officially opened for business in February 2008.<\/p>\n It began with a staff of seven\u2014it now has about 100 employees\u2014and spent the next two and a half years in development, working closely with companies that were building the new processor chip technology. \u201cIt was a long development cycle because we had to build hardware and software,\u201d says Wexler. \u201cAnd there were fundamental questions of whether we could build it, whether it would work, and whether it would meet the cost targets we set.\u201d<\/p>\n Once they got the technology humming, they had to find a mobile carrier that would let their product radiate on its spectrum. \u00adLondon-based Vodafone, the second-largest mobile telecommunications company in the world, stepped in and did \u201ca massive amount\u201d of testing over a two-year period.<\/p>\n SpiderCloud\u2019s progression has been steady; the only hitch was during the recession, when it went to raise a second round of capital and venture firms were not doing much funding. \u201cIt took us twice as long to raise the money the second time,\u201d says Wexler. \u201cIf we hadn\u2019t decided we needed more money during the initial capitalization, we wouldn\u2019t be around today. We had to be really careful about our spending; we were literally a couple of weeks away from having to shut down. It also helped that we were passionate about what we were doing.\u201d<\/p>\n The talent, enthusiasm, and support of SpiderCloud\u2019s staff are other major factors in the company\u2019s success. \u201cThe majority of venture-funded companies fail,\u201d says Wexler. \u201cThe great start-ups tend to employ incredibly talented Type A personalities, many of whom haven\u2019t worked with each other before. The team members are put under insane schedule pressure, and they\u2019re not paid a whole lot. Fundamentally, this shouldn\u2019t work. It\u2019s like an arranged marriage. One of the key leadership challenges is keeping people motivated and focused. Also, interpersonal issues need to be dealt with in an effective and timely fashion. If you have recruited great people, they can get another job at any time. So nurturing the culture inside the company is critical, especially if you want the company to be around for the long term.\u201d<\/p>\n Wexler has good reason to be optimistic. Vodafone is now a customer, and SpiderCloud has trials going on elsewhere in Europe, the United States, and Latin America. \u201cThe test period is much shorter now,\u201d says Wexler of SpiderCloud\u2019s technology, \u201cbecause once you\u2019ve got a big company that says a product works, other companies don\u2019t feel the need for a such a long trial.\u201d<\/p>\n In 2012, SpiderCloud raised an additional $35 million in venture capital, with a valuation of close to $200 million. That money is helping the company to develop the next version of its product. \u201cWe\u2019re probably on the third generation of technology now because the cellular stuff evolves so rapidly,\u201d says Wexler. \u201cYou always have to adapt; otherwise, you\u2019re toast.\u201d<\/p>\n Wexler is hoping to turn a profit by the end of 2014. Meanwhile, SpiderCloud will likely take advantage of debt to finance working capital. \u201cWe\u2019d prefer not to go after more venture capital, because we don\u2019t want to give away more chunks of the company,\u201d he says. \u201cThe hope is that your sales rise enough, and with working capital financed by debt, you can become profitable.\u201d<\/p>\n Peter Wexler is a member of the SMG Dean\u2019s Advisory Board. He and his wife, Deborah (\u201993), recently endowed a professorship at the School.<\/em><\/p>\n","protected":false},"excerpt":{"rendered":" For Peter Wexler (\u201993), you start a business because: \u201cYou have a great idea, you\u2019re solving a real problem, and there\u2019s an opportunity in the market.\u201d Common sense, right? But too often, people don\u2019t see beyond the good idea, don\u2019t understand that need and opportunity are part of a package. Not surprisingly, they\u2019re bound to […]<\/p>\n","protected":false},"author":2184,"featured_media":0,"parent":26,"menu_order":44,"comment_status":"closed","ping_status":"closed","template":"story.php","meta":[],"yoast_head":"\n\u201cThe great start-ups tend to employ incredibly talented Type A personalities, many of whom haven\u2019t worked with each other before…\u2009 [They\u2019re] put under insane schedule pressure, and they\u2019re not paid a whole lot. Fundamentally, this shouldn\u2019t work.\u201d<\/span><\/h4>\n<\/div>\n